Source: Author’s analysis of data from the National Income and Product Accounts (NIPA) of the Bureau of Economic Analysis (BEA), tables 1.1.6 and 2.1.
This slow growth clearly delayed economic recovery for U.S. workers by years. If one takes the trajectory of spending that characterized the 1980s and assumes this had been replicated after the 2009 recovery began, state and local spending would have been $800 billion higher by the first quarter of 2013. At that point in the recovery, unemployment was still at 8%?and the Federal Reserve was years away from thinking about raising interest rates. This means that this extra spending, if financed by federal aid, would have translated directly into extra economic output and jobs. $800 billion in spending, even with modest multipliers, would have supported roughly 8 million more jobs?in that year, enough to restore the economy to pre-crisis unemployment rates (4.4%) even with higher labor force participation than prevailed in 2013. In short, state and local spending austerity by itself delayed the recovery to pre-Great Recession unemployment rates by probably about 4 years.
Another thing to note on this graph is that besides the recovery from the Great Recession, the next-slowest growth of state and local spending on record is during the recovery following the 2001 recession. This means that the past two recoveries have seen abnormally slow growth of state and local government spending. This in no way supports recent claims that states only need federal aid in the current moment because of their own profligacy. Instead, they need aid because a once-in-a-generation shock has smashed in the economy.
Finally, state and local governments are currently forecast?to be facing revenue shortfalls as large as $1 trillion over the coming years. If no help is forthcoming from the federal government to close these shortfalls, the result will be an economic disaster—one that is not confined to these governments.
Besides the obvious loss of valuable public services, cuts of this size would quickly ripple out from the public sector and destroy private-sector jobs. Filling in these shortfalls and averting these cuts would save or create more than 5 million jobs by the end of 2021, with a majority of these in the private sector. The arithmetic of this is straightforward—$1 trillion of state cuts averted between now and the end of 2021 corresponds to an average annual increase in spending of roughly $570 billion. This corresponds to $740 billion in additional economic activity when taking multiplier effects into account (for multipliers for state and local aid, see Table 1 in this). This represents just under 4% of total national income, and would support (all else equal) about 4% more employment in that year. Based on the severely depressed employment level of April 2020, this would be a bit over 5 million jobs.
These multiplier effects include the reduced spending on private-sector businesses that would result if public-sector workers were laid off, as well as the income-depressing effect of cutting needed safety net programs (Medicaid) or public goods (like public transportation or education). As households have to pay out of pocket for goods formerly provided in part by the public sector, they would have less money to spend on other businesses’ output. In the first two years following the Great Recession, federal aid to states to support Medicaid spending?has been shown to have been possibly the single most effective bit of fiscal support provided over the entire crisis.
In many ways, the economy is currently approaching a knife edge in how recovery will proceed. If the virus relents and effective public health measures are undertaken that allow a phased reopening of business, and if the federal government provides sufficient measures for relief and recovery during this crisis, then recovery could be rapid. Many workers who lost their jobs in recent months are on temporary layoff and could reestablish ties with employers quickly if confidence and demand for output was high. But this confidence and demand will be savaged if policymakers allow state and local governments’ spending to be hamstrung by the crisis. These subnational governments spend about $4 trillion every year in the economy, making them the second-largest source of spending outside of the federal government. If they are forced into crash-cutting, the entire economy will suffer. And this crash-cutting is unnecessary—the federal government has the capacity to transfer resources to these governments to keep this suffering from happening. They need to use it.黄色网站在线看